How Real Estate Investors Can Avoid Costly Legal Mistakes with Leslie Margolies

Leslie A Margolies Esq. (00:00)
All that profit that real estate investors work so hard for can go down the drain in a second by one simple mistake. And real estate lawyers can help you stay out of it. We know what the legal pitfalls are. We know where all the problems arise. So my rule of thumb is always just see a lawyer before you sign anything. You want to get involved in real estate, don’t use

generic forms that you’ve got from a course. Go to a lawyer in your state and say, you see this form, I need one that is similar to this but for my state.

Michelle Kesil (02:11)
Hey everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil, and today I’m joined by someone I’m looking forward to chatting with, Leslie Margolies, who is a real estate lawyer helping landlords and investors protect their assets and learn the best practices for their investing journey. So excited to have you here today, Leslie.

Leslie A Margolies Esq. (02:35)
Thank you. I’m happy to be here.

Michelle Kesil (02:37)
Great, let’s dive in. So first off, for those not familiar with you and your work, can you share what your main focus is?

Leslie A Margolies Esq. (02:44)
Well, I am not, I’m kind of a unicorn. I’m not only a real estate attorney, I’m also a licensed realtor and also a certified negotiator or certified mediator. So I bring those skills to help real estate investors and landlords, whether they’re investing to flip or whether they’re investing to buy and hold, to reduce their risk and stay out of court because in the drop of a hat, you can lose your time.

higher year’s profit with one legal problem. it’s always in their best interest to avoid those problems.

Michelle Kesil (03:22)
Yeah. And what markets are you serving?

Leslie A Margolies Esq. (03:26)
So right now ⁓ I’m licensed in Pennsylvania, so we serve the Pennsylvania market. Soon we’ll be rolling out into Florida and then after that into other states nationwide. We teach landlords, we have a program called Landlord College and we teach landlords on an online learning platform how to navigate the legal pitfalls, a blueprint for them to understand risk.

and how to avoid it. And with Deal Guard, we are simply providing a flat fee service for either buyers or sellers and their agents to help them through the legal process so that we can kind of as co-piloting the deal with the real estate agent, helping them to perform risk management protocols and to resolve conflict if it arises and to make sure

that the buyers do not run the risk of losing their good faith deposit and that sellers do not run the risk of being sued for misrepresentation after the sale, which those are the two big risks that buyers and sellers face.

Michelle Kesil (04:37)
Yeah, and what would you say are some of the main processes that you help people with?

Leslie A Margolies Esq. (05:33)
Well, for DealGuard, one of the problems with the real estate transaction is…

that the industry, in my opinion, my humble opinion, the real estate industry, especially in Pennsylvania, but I’ve studied this and I know it’s similar in other states, you know, you don’t have to have a college education to become a real estate agent. And these are very large transactions where people are buying and selling. for some people, it’s the largest financial transaction in their lives. And for some people,

It is an investment in their business, then they hope to be successful. And even outside of the real estate industry, you have to understand that risk management is one of the keys to success in any business. Imagine you’re running a restaurant and you don’t know about how to properly handle food and somebody gets food poisoning. Imagine you own a

huge construction company and you don’t know how to manage safety on the site and someone dies. Every time a legal risk happens that could have been easily prevented, that company is either going to go under or suffer. ⁓ And so our judicial system is not designed to help people really resolve their conflicts in a very efficient, cost efficient, or even time efficient manner.

It’s in their best interest to learn to manage risks. And they do that by just learning what are the common risks in my business. And for real estate investors like any other business owner, there are certain risks. So for example, for sellers, when you fill out the seller’s property disclosure form, which is required in Pennsylvania, it’s best to over disclose.

And a lot of people do not understand that.

you are required to disclose every risk, I’m sorry, every defect that ever occurred on that property, even if it’s been repaired already. So if you had a leak five years ago but it was repaired, you’re supposed to disclose that. But sellers typically don’t know that and real estate agents were unfortunately trained, and I think this is miscommunication, but real estate, I took the same exam they did. And we were told not to interfere with that process.

Do not help the seller fill out the form because they’re supposed to fill it out themselves. That doesn’t mean that you shouldn’t give them guidance and the guidance should be to over disclose rather than under disclose. That builds good faith because they see all these things. they told us about that even though it’s been repaired. You can even attach the repairer seats. And what that does is when the buyer goes through the home inspection process,

they can allow their home inspector to look at that issue. there was a roof leak at one time, can you take a look at that?

But when they don’t do that, when sellers do not over disclose, what happens is after settlement, the buyers find out about problems and they talk to neighbors and the neighbors say, they’ve had that problem forever. They’ve been dealing with water in their basement for years. And so ⁓ that becomes a legal problem that requires both parties to first go to mediation. If they can’t resolve it, then they end up

of going to litigation. And it builds a lot of distrust. I’ve seen a lot of deals fall apart because something at the home inspection rises and this buyers start to feel like the sellers haven’t been entirely straightforward with them.

So that’s just one example. For buyers, they go into the risk of losing their good faith deposit during the transaction if they or their agent do not understand all the deadlines, the time deadlines, the contingencies. There’s all sorts of contingencies, appraisal contingencies, home inspection contingencies, survey contingencies, you name it. So.

So my goal is not to be the overbearing, arrogant lawyer that comes in and throws my weight around, because I think that’s what a lot of people think of us. But I have a mediation background, so my goal is to help get that deal to closing. this is something that is really

necessary and needed for buyers and sellers throughout the United States because the real estate industry is designed to close deals. It’s not designed to protect the parties that are involved in that deal.

Michelle Kesil (11:10)
Yeah, absolutely. And if someone is an investor, what are some common misconceptions or maybe parts of the process that they tend to overlook that you often help them understand or find solutions for?

Leslie A Margolies Esq. (11:23)
you

⁓

That’s a good question. There’s a lot of…

I’ll call them gurus out there, take teaching investors courses about how to do creative deals. Sometimes the contracts that are provided are very generic. They’re not designed for the state in which that investor lives and works. And creative deals can get you into a lot of trouble if you don’t consult with an attorney first. And my rule of thumb is before you sign anything, talk to a lawyer. It’s always going to be cheaper

to just hire a lawyer to review something and explain it to you and explain the risks involved, that it is to clean up the mess afterwards. And I mean, you could take a poll among litigation attorneys and they would all say, if I had a nickel for every time I’ve said, you should have come to me first. Because, you know, I think…

Consumers in the United States in general, I think they forget that we have a counselor role too. We’re not just advocates. That’s where the word counsel comes from. We are here to counsel. We are here to provide advice too. And in the old days, when you just hung a shingle and people would walk in off the street to see a lawyer, we would provide that counsel. But the industry has become,

changed so much over the years. You’re probably too young to even remember, but back in the 80s when I was in law school, it had just recently become possible for lawyers to advertise.

I mean, think about that. We weren’t even permitted ethically to advertise before. And now we are business advertising all over the place and on social media just like everybody else. And I think along the way both…

consumers and lawyers have forgotten that we have a responsibility to counsel as well to give advice to help people stay out of trouble, not just to make money to clean it up. You know, and that’s that’s unfortunate. And so one of the reasons why I wanted to get on podcasts and start talking about this is we have become such a litigious society that is it is no longer functioning to to really

help the parties involved. It’s just the person with the most money wins. And that’s unfortunate, but it’s also a

All that profit that real estate investors work so hard for can go down the drain in a second by one simple mistake. And real estate lawyers can help you stay out of it. We know what the legal pitfalls are. We know where all the problems arise. So my rule of thumb is always just see a lawyer before you sign anything. You want to get involved in real estate, don’t use

generic forms that you’ve got from a course. Go to a lawyer in your state and say, you see this form, I need one that is similar to this but for my state.

Michelle Kesil (15:34)
Yeah, that is good advice. And can you share a bit more about the online school that you’re creating? What are some of the educational aspects of it? Like what are some of the main teachings that you’re going to share?

Leslie A Margolies Esq. (15:50)
So in Landlord College, which actually was started back in 2019, and when the pandemic hit and landlords went into crisis mode because they were not receiving rent and the governments were putting a moratorium on evictions, we stopped for a while because we were just in triage mode. We were really helping landlords try to figure out

How do we get an eviction in the middle of this crisis? And then after the crisis really passed, we started back up again, but we changed the format because at the beginning we were really just teaching what the common mistakes were. I could name 25 common mistakes and we could discuss them in class, but now what we’re really doing is also going beyond that and teaching.

teaching

landlords how to put on a lens of risk management, how to look at problems as a risk manager would, how to spot things ahead of time. And we all do risk management in our lives every single day. If you’ve ever parked in the back of the parking lot or at the supermarket because you don’t want your car dinged, that’s risk management, right? We do it every single day.

If you take the scenic route home because you want to rush hour traffic, that’s risk management. So we do it every day. We’re just not accustomed to doing it in our business. And that’s what I’m trying to teach landlords in Landlord College is not only the laws of the state that they need to understand, not just fair housing, but consumer protection laws. What are the tenants’ rights? What are your obligations?

you establish a good relationship with your tenant so that you will have a good working relationship? How do you establish parameters and manage expectations? One of those things is we suggest, we recommend that every landlord do a tenant onboarding, just like you an onboard an employee. So, you you’re having a conversation and even if you’re out of state, you can do it by Zoom.

and you record it so that you’ve advised tenants ahead of time, but they should know because not all leases are the same, although tenants kind of assume they are. They assume that whatever’s on the lease is the law and that that’s not necessarily true. Leases can be all, all can be different and they can have different obligations and requirements for both sides. And,

And there’s so much more that a landlord can put in their lease to protect them that’s not there. I don’t know if you know this, but a lot of investors will use the standard lease that’s published by the Association of Realtors in their state. To me, that’s a poor choice because those forms are neutral by design.

Think about it, the Pennsylvania Association of Realtors, for example, can’t be seen to be landlord friendly or tenant friendly. That would be public suicide for them. They have to be neutral. And not only that, but the forms themselves come out of a committee in our state capitol. And so it’s really just designed to be neutral. The security deposit clause itself is very, very vague.

So, you know, that security clause will just only protect you from damages beyond normal wear and tear. Well, a customized lease can put an entire list of things that that tenant is going to be responsible for, including light bulbs and batteries from the smoke alarm and legal costs. legal costs, even if you’re not going to court, I mean, the list can, you know, super dupe.

heavy duty cleaning if somebody has left ⁓ appliances so poorly maintained that they have to be replaced. There’s so much you can put in a contract. We put in custom clauses like cooperation clause.

communication clause. So you can’t go MIA on me and not give me your new phone number and make it impossible for me to communicate with you. That’s a breach. I can put in mediation clauses that require that tenant to participate in mediation if it’s an issue like an emotional support animal that I think is not really an emotional support animal. But they’re paying the rent. So I don’t want to fit them. I want to reside.

solve

this issue. there’s so much more that landlords can put in as long as they’re not violating some consumer protection law and even some of those are permissible to be waived, but it has to be waived in an appropriate way. It has to be drafted in a certain way. I highly recommend that landlords pay the extra bucks. It’s not much considering that they

can use the lease over and over and over again to get a customized lease drawn up for your state that’s gonna protect you, that’s gonna have all these, I mean, those standard lease forms don’t even have a clause that says habitual late payment is a default. So as long as the tenant keeps, they all the time abuse the grace period, and yet they can cure it by paying the late fee, right?

you can’t say that’s a breach unless you have a clause that says that habitual late payment is a breach. So there’s so much we can add to protect landlords. So, you my advice is really for a lot of landlords to get a customized lease, to take a course like mine where they’re learning the rules of the road.

You know, we all believe, I think, that because we’ve owned a property before.

We know what to do as a landlord, but there’s so much more involved. And the landlord-tenant relationship is dysfunctional by nature and according to history. I mean, did you know that the landlord-tenant relationship is older than our country? It goes back to the Middle Ages, to medieval times when there were landlords and serfs. It’s a highly dysfunctional relationship. So for you to start it off on the road,

you’re going to have problems. So onboarding allows you to establish the rules of the road at the beginning and to manage expectations. If you do this, this is what’s going to happen. If you don’t do this, this is what’s going to happen. This is how I work. And I may be different from other landlords, but this is how we operate. This is how you can communicate with me when you have a maintenance issue.

So you can manage a lot of the problems that landlords experience by doing that onboarding. But unfortunately, what I’ve seen in the past is landlords get frustrated with all the problems. They go into it thinking that it’s easy because we’re told it’s passive income. Well, yes, it can be passive income if you have a property manager managing it for you. But if you don’t have a property manager,

and it’s not completely passive. It is passive in the sense that the amount of time I’m putting in compared to the rent I’m receiving is pretty passive. But you still have to do some things. And if you’re not good at them, that is something that a lot of people who go through my course realize. They take the course and they realize maybe I’m not designed to be a good manager of my tenants.

I should hire a property manager because maybe I don’t have those skills. Because it is a skill set. There is definitely a skill set to being a good landlord and clear communication. We talk a lot about communication and recently I had the pleasure of meeting a professor at Dartmouth who is a professor of conversational science.

And I never even heard of that before. But it is exactly what I’m teaching. How do you communicate with your tenants so that you’re in the driver’s seat, that you’re in control? Because what happens is something comes along, there’s a bump in the road, and then landlords do not know how to solve it, they do not know how to resolve it, they do not know how to communicate with the tenant to get it resolved. And then the whole entire relationship is derailed.

Now you’re out, you’re not in control anymore and it’s combative and maybe they’re getting aggressive. So, and we talk about also about just simple things like.

being aware that you need a paper trail and make sure that that paper trail is appropriate. If you say something verbal to a tenant, follow it up with an email as we discuss, blah, But also being wary not to start screaming at a tenant via text message in all capitals, because that’s going to end up in court, that text message, which makes them look bad.

So there’s so much, there’s so much we talk about. Best business practices.

you know, how to do the onboarding, how to customize the lease, how to think about your business that’s appropriate for you because everybody’s business is different. Some people like short-term rentals, some people like long-term rentals, some people only want to do the flips. I mean, you have to think about the way you want to set up the business. Do you want to be in A areas where it’s capital appreciation that you’re depending upon, or do you want to be in B or C?

areas, or even D areas where it’s cash flow is king. Do you need cash flow or capital appreciation? What’s your goal, right?

Michelle Kesil (26:51)
Yeah, absolutely.

Yeah, amazing. Sounds like a great program. Thank you so much for sharing.

Leslie A Margolies Esq. (27:00)
⁓ I’m happy to share. ⁓

Michelle Kesil (27:03)
lesson.

Leslie A Margolies Esq. (27:04)
I have an Instagram page, it’s Professor Landlord, and it’s fun for us to have these courses. And the more I teach them, the more I understand that landlords have nowhere else to go. There’s just a shortage of resources for them. And so it’s so good of you to share that kind of information with them because there is no one, you know, writing books.

on this subject. Landlord, you know lawyers don’t get rich being, nobody wants to be a landlord to the lawyer because you don’t make a lot of money. So there’s not, there’s no books written that are really helpful. There’s no resources for them to go to for guidance. So I tend to think outside the box. So that was my way of trying to fill in the gap.

Michelle Kesil (27:56)
Perfect, amazing. Well, before we wrap up here, if someone wants to reach out and learn more, where can people find you?

Leslie A Margolies Esq. (28:04)
Well, my email is [email protected]. It’s very hokey, but everybody remembers it. So it’s [email protected]. Our website is therealestatelawgroup.org. And our office phone is 215-904-3006. And we’re on Instagram at Professor Landlord.

Michelle Kesil (28:31)
Perfect. Appreciate your time and your story. Thank you for being here.

Leslie A Margolies Esq. (28:35)
it’s my pleasure. Thank you.

Michelle Kesil (28:37)
Of course And for the listeners tuning in, you got value, make sure you have subscribed. We have more conversations with operators like Leslie and we’ll see you on the next episode.